FATF Report. Money Laundering through Money. Remittance and Currency Exchange Providers

Transcription

1 Financial Action Task Force Groupe d action financière FATF Report Money Laundering through Money Remittance and Currency Exchange Providers June 2010

2 COUNCIL OF EUROPE COUNTERING MONEY LAUNDERING AND FINANCING OF TERRORISM (MONEYVAL) The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism - MONEYVAL (formerly PC-R-EV) was established in At their meeting of 13 October 2010, the Committee of Ministers adopted the Resolution CM/Res(2010)12 on the Statute of the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL). This new statute elevates MONEYVAL as from 1 January 2011 to an independent monitoring mechanism within the Council of Europe answerable directly to the Committee of Ministers. The aim of MONEYVAL is to ensure that its member states have in place effective systems to counter money laundering and terrorist financing and comply with the relevant international standards in these fields. For more information about MONEYVAL, please visit the website: THE FINANCIAL ACTION TASK FORCE (FATF) The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering and terrorist financing. Recommendations issued by the FATF define criminal justice and regulatory measures that should be implemented to counter this problem. These Recommendations also include international co-operation and preventive measures to be taken by financial institutions and others such as casinos, real estate dealers, lawyers and accountants. The FATF Recommendations are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard. For more information about the FATF, please visit the website: MONEYVAL and FATF/OECD. All rights reserved. Reproduction is authorised, provided the source is acknowledged, save where otherwise stated. For any use for commercial purposes, no part of this publication may be translated, reproduced or transmitted, in any form or by any means, electronic (CD-Rom, Internet, etc) or mechanical, including photocopying, recording or any information storage or retrieval system without prior permission in writing from the MONEYVAL Secretariat, Council of Europe (F Strasbourg or dghl.moneyval@coe.int). No reproduction or translation of this publication may be made without prior written permission. Applications for such permission, for all or part of this publication, should be made to the FATF Secretariat, 2 rue André Pascal Paris Cedex 16, France (fax or contact@fatf-gafi.org).

3 Money Laundering through Money Remittance and Currency Exchange Providers TABLE OF CONTENTS ABBREVIATIONS... 6 EXECUTIVE SUMMARY... 7 INTRODUCTION... 8 CHAPTER I OVERVIEW OF MONEY REMITTANCE & CURRENCY EXCHANGE SECTORS General The money remittance sector in MONEYVAL/FATF member States The currency exchange sector in MONEYVAL/FATF member States Licensing, supervision and sanctioning system of money remittance and currency exhange providers in MONEYVAL / FATF member States CHAPTER II - MONEY LAUNDERING METHODOLOGIES INVOLVING MONEY REMITTANCE AND CURRENCY EXCHANGE PROVIDERS Customers Owners and agents Most common predicate offences identified Informal money remittance services CHAPTER III - KEY FINDINGS Assessing ML/TF risks and threats within the MR/CE sector Additional measures to be considered at national and international level CHAPTER IV ISSUES FOR FURTHER CONSIDERATION Assessing ML/TF risks and threats within the MR/CE sector Additional measures to be considered at national and international level ANNEX 1 JURISDICTIONS PROVIDING INPUT TO THIS STUDY ANNEX 2 LIST OF INDICATORS OF POTENTIAL MONEY LAUNDERING ACTIVITY Indicators for all money remitter and currency exchange (MR/CE) service providers Indicators for CE service providers Indicators for MR providers ANNEX 3 TABLES : QUESTIONNAIRE RESULTS Table 1 - Overview of MR/CE service providers in jurisdictions contributing to this study Table 2 - Overview of the MR/CE service providers in jurisdictions contributing to this study Table 3 - Regulatory framework of MR service providers in jurisdictions contributing to this study Table 4 - AML/CTF supervision MONEYVAL and FATF/OECD - 3

4 Money Laundering through Money Remittance and Currency Exchange Providers Table 5 - Sanctions applied to unlicensed /unregistered MR service providers Table 6 - Threshold for identifying the customer Table 7- Regulatory framework for CE service providers in contributing jurisdictions Table 8 - Number of referrals, prosecutions and convictions based on STRs received from MR/CE sector ( ) REFERENCES AND BIBLIOGRAPHY GLOSSARY OF TERMS MONEYVAL and FATF/OECD

5 Money Laundering through Money Remittance and Currency Exchange Providers MONEYVAL and FATF/OECD - 5

6 Money Laundering through Money Remittance and Currency Exchange Providers ABBREVIATIONS AML CFT CE CDD CTR EU FIU ID KYC ML MR NA STR TF Anti-money laundering Counter financing of terrorism Currency exchange Customer due diligence Cash transaction report European Union Financial intelligence unit Identification Know your customer Money laundering Money remittance Not available Suspicious transaction report Terrorist financing MONEYVAL and FATF/OECD

7 Money Laundering through Money Remittance and Currency Exchange Providers EXECUTIVE SUMMARY 1. This joint FATF/MONEYVAL report contains information on money laundering and terrorist financing methodologies associated with the money remittance and currency exchange sector. The findings contained in the report derive from information provided by 61 FATF, MONEYVAL and Egmont Group member States and other open source material. Though the focus of the report is to a certain degree on the MONEYVAL region and the wider European area, the experience of countries from other regions of the world was actively sought and integrated into the report. 2. Apart from providing a useful general overview of the sector of money transfer remittances and currency exchange providers, the regulatory framework, the supervision and sanctioning regimes, the report sets out identified money laundering and terrorist financing methods and techniques involving money remittance and currency exchange providers. 3. Several case studies described in this report illustrate that money remittance and currency exchange businesses have been both witting and unwitting participants in laundering activities, in all three stages of the process (placement, layering and integration), and in certain instances, for terrorist financing purposes. The identified risks of ML/TF through the sector detailed in the report are related to clients, owners or agents. The cases highlight also the links between money laundering in the money remittance sector and other criminal activities (e.g., fraud, trafficking in human beings, smuggling, drug trafficking, economic crime). 4. A number of vulnerabilities to money laundering across the sector that make up the money remittance and currency exchange sector were identified. The analysis of the case studies and other materials enabled the project team to compile numerous examples of indicators of potential money laundering activities related to transactions, customer profile and behaviour as well as specific indicators for bureaux de change and money remittance providers that may help the industry to identify and describe suspicious behaviours and protect themselves against money launderers and other criminals. 5. Clearly, laundering through money remittance and currency exchange providers poses a number of regulatory and enforcement challenges. At the same time, it was observed that there is low detection of money laundering in comparison to the size of the industry as a whole. The money laundering and terrorist financing threat in the sector not only results from direct penetration of criminals into operations of money remittance or currency exchange providers. The absence or lax implementation of AML/CFT standards and adequate related policies provide opportunities which are being exploited by money launderers and other criminals. 6. Finally, the report maps also a number of issues and areas which were identified in this context as appearing to require additional efforts, both from regulatory and supervisory authorities as well as from the industry, in order to reduce the misuse of the sector and ensure that ML/TF risks are adequately addressed. These issues will likely require further investigation together and updating research, not only to continue the development of a better understanding of specific money laundering and terrorist financing risks in the money remittance and currency exchange sector but also to ensure that regulatory responses are proportionate and effective MONEYVAL and FATF/OECD - 7

8 Money Laundering through Money Remittance and Currency Exchange Providers INTRODUCTION 7. Specialised financial businesses have for many years played an increasing role in providing certain types of services, including money remittance (MR), foreign currency exchange (CE) and the issue/management of means of payment to a variety of actors. The globalisation of financial markets and the development of information technology have made the movement of funds across the world easier and have thus further spurred the growth of these specialised financial services. The service providers in this field (the MR/CE sector ) are quite diverse and range from simple businesses to complex chain operators. 8. In order for criminals to move, hide and eventually use the funds generated by their illegal activities, they must seek ways to launder those funds without drawing the attention of law enforcement or other authorities. Given the range of products and services offered, the variety of distribution channels, the high transfer speed and the fact that they are often cash-intensive businesses, the MR/CE sector may provide significant opportunities for criminals desirous of laundering funds unless appropriate safeguards are in place. Particular risks involved with the sector are related not only to the misuse of MR/CE businesses for laundering money but also to the owning of such businesses by criminal groups and corrupt employees co-operating with criminals. 9. Typologies reports published by the Financial Action Task Force (FATF) over the years have highlighted money laundering risks posed by bureaux de change (FATF typologies report, and 2001) and examined money laundering and terrorist financing vulnerabilities of alternative remittance systems (FATF typologies report ). At the time that these studies were conducted, little information was available on the MR/CE sector in MONEYVAL member States or on the ML/TF risks facing the sector. Thus, MONEYVAL and the FATF decided in 2008 to undertake a joint project on methods of money laundering through MR/CE businesses. Scope of research 10. In most jurisdictions, MR/CE businesses are not defined as banks. While in some countries, such as the United States 1 and the United Kingdom, national legislation has defined this group of financial service providers, the MR/CE sector in most countries is not explicitly defined. In the FATF 40 Recommendations as well as in the third EU Money Laundering directive 2, those financial businesses providing MR/CE services are considered to be a subset of financial institutions 3. Using the term non-bank financial institutions to refer to MR/CE services can also be misleading in that the term as defined by the FATF also included broker dealers in securities and casinos. The term is even less helpful now, as the FATF currently makes the distinction between financial institutions on the one In the United States, the term money services business has been defined since 1999 when the Secretary of the Treasury issued a ruling revising the regulatory definitions of certain non-bank financial institutions for purposes of the Bank Secrecy Act. These revised definitions were grouped into a separate category of financial institution called money services businesses or MSBs. Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing. For further details, please see the glossary of the FATF 40 Recommendations and article 3 (2) (a) of the Directive 2005/60/EC MONEYVAL and FATF/OECD

9 Money Laundering through Money Remittance and Currency Exchange Providers hand and designated non-financial businesses and professions (DNFBPs) on the other. The former category includes all of the activities that are provided by MR/CE services. 11. Typically, MR/CE services include three types of activity: Currency dealers/exchangers; Money remitters; and Issuers, sellers and redeemers of stored value and monetary instruments, such as money orders and traveller s checks. 12. The category money remitters is diverse, ranging from large organisations, like Western Union, to what are often termed informal value transfer systems. This latter category includes systems that often operate outside the regulated financial system and are deeply rooted in historical, cultural and economic backgrounds. Well known examples include hawala, flying money systems indigenous to China, India s hundi system, and the padala system used in the Philippines Given the research already conducted on the subject by the FATF other international organisations, this study does not attempt to duplicate already existing information. For this reason, it was decided to exclude from its scope the analysis the misuse of new payment methods 5, of traveller s checks and money orders. The methods and trends of money laundering and terrorist financing through alternative remittance systems are also not analysed in-depth 6 because the potential misuse of such systems for terrorist financing was already covered in the 2008 terrorist financing typologies report produced by the FATF This research report therefore focuses on non-bank financial institutions that provide at least one of the following services: (1) money remittance, (2) currency exchange/dealing and (3) issuing, cashing or redeeming of cheques/money orders/stored value cards. 15. The research conducted on this subject also provided an opportunity to take stock of potential money laundering threats arising from the changeover to the Euro in certain countries. This is an important issue for many MONEYVAL members in that a number of EU members from MONEYVAL have yet to adopt the Euro as official currency and are looking to develop best practices based on measures already adopted by euro zone countries to address those threats. This research thus attempts to lay out relevant findings, in the light of developments in this specific sector as well as in the EU regulatory area, resulting from the adoption and implementation of the EU legislation that directly impacts upon the MR/CE sector. 16. After examining how MR/CE businesses may be misused for money laundering purposes and identifying vulnerabilities that may be exploited by criminals, the report will look at appropriate measures which could be taken to address the identified vulnerabilities. It should be stressed that HM Treasury (2006). For more details about the alternative remittance system, the profile of the users of the system and its role in ML, please refer to Chene (2008). See FATF (2006). The FATF has since updated this research, and a report on the subject was published in October 2010 that considers the vulnerabilities of new payment methods to ML/TF (the report focuses on prepaid debit cards, mobile payment services, on-line payment systems). Additional literature on ML/TF schemes through new payment technologies is also available (see US Department of Justice (2006), Sienkiewicz (2007), Choo (2008)). See FATF (2005), MENAFATF (2005), Carroll (2007). See also for further information the IMF (2005a, 2005b) See FATF (2008a) 2011 MONEYVAL and FATF/OECD - 9

10 Money Laundering through Money Remittance and Currency Exchange Providers available information has allowed the money laundering threat facing MR/CE businesses to be documented. Regarding the threat of terrorist financing facing such businesses however, there was far less sector-specific information to work with. This report then focuses primarily on the range of ML techniques to which MR/CE businesses may be vulnerable and provides a series of illustrative typologies. A non exhaustive list of indicators of potentially suspicious activity has been included in the report, which is intended to assist the private sector, law enforcement and regulators detecting ML within the sector. Finally, the report also briefly lays out a series of issues and areas for further consideration. Methodology and sources 17. The research and analysis of the material used to develop this report was conducted by a small joint project team of experts from MONEYVAL and FATF jurisdictions. The experts contributed to the analysis and drafting of the report through a series of working meetings and exchanges of written material that took place over a period of about two years. The project was led by Estonia, with Mr Raul Vahtra and Ms. Kerly Krillo of the Estonian financial intelligence unit heading up the work, including the main task of drafting this report. The following countries and organisations contributed to the project with either substantive material or expertise: Australia, Bulgaria, Cyprus, Germany, Italy, Mexico, the Netherlands, Poland, Romania, Sweden, Spain, the United States, the Egmont Group and the European Bank for Reconstruction and Development. 18. One of the main sources of information for the project was a detailed questionnaire which solicited a range of range of material, including case studies, national-level typologies research and other relevant expertise. Well over 50 questionnaire responses were received and analysed by the project team from FATF, MONEYVAL and Egmont Group members. 8 The project team also used the discussions and findings of the Joint FATF/MONEYVAL meeting of experts on typologies (held in Monaco, November 2008, which gathered participants from 40 countries, 2 international organisations and 3 FATF-style regional bodies), as well as other FATF typologies reports, case studies and open source information. 19. While the focus of this report is to a certain degree on the MONEYVAL region and the wider European area, the experience of countries from other regions of the world was actively sought and integrated into the report. Acknowledgements 20. This project was conducted by a team of experts from both FATF and MONEYVAL members, who have contributed to the project throughout the working meetings and by providing written contributions and comments which have been reflected in this report. The project team would like to thank all FATF, MONEYVAL and Egmont Group members which responded to the survey and provided other valuable input to this research. 8 See Annex 1 for a list of contributing jurisdictions MONEYVAL and FATF/OECD

11 Money Laundering through Money Remittance and Currency Exchange Providers CHAPTER I OVERVIEW OF MONEY REMITTANCE & CURRENCY EXCHANGE SECTORS 1.1 General 21. The globalisation of the financial sector and the vast development of information technologies has contributed to a considerable increase in the volume of the activity carried out by the MR/CE sectors during the past two decades. In the US for example, the estimated value of financial services provided by the money service business industry, which includes MR/CE activity, 9 was approximately USD 200 billion annually in 1997; however, by 2005 the industry had grown to approximately USD 284 to USD 305 billion (FinCEN 2005). Unfortunately there are no similar figures available for the equivalent sector in other parts of the world; therefore it is impossible to estimate the size of the MR/CE industry globally. 1.2 The money remittance sector in MONEYVAL/FATF member States 22. The World Bank estimate of money remittance (MR) worldwide is billion USD for 2008 and (estimated) for Not all countries are able to determine the total volume of incoming and outgoing MR activity. It is therefore difficult to provide an indication of the proportion of global MR that MONEYVAL/FATF countries represent. Nevertheless certain jurisdictions are able to provide reliable estimates of the volume of MR activity, and these are included in Table 1 below. From this information, countries can be divided into two groups: Senders, i.e,. countries where the amount of outgoing money transfers are remarkably higher than incoming. Receivers, i.e., countries where the amount of incoming money transfers are remarkably higher than outgoing. 23. At European level, the first group mostly includes primarily the old EU member states (Germany, Greece, Italy, and Spain), along with Croatia, Cyprus, Malta, and Monaco; while in the second group southeastern European countries and former Soviet republics (Armenia, Bulgaria, Georgia, the former Yugoslav Republic of Macedonia and Ukraine) predominate. Country Table 1. Volume of money remittances sent and received in selected MONEYVAL/FATF member States ( , million EUR) Sent Received Armenia Bulgaria NA NA Cyprus See paragraph 10 above for an explanation of the difference between MSBs and MR/CE service providers as the terms are used in this report MONEYVAL and FATF/OECD - 11

12 Money Laundering through Money Remittance and Currency Exchange Providers Sent Received Country Germany Spain NA NA Georgia Greece NA NA Croatia Italy Monaco the former Yugoslav Republic of Macedonia Malta Ukraine NA: not available. 24. Among those MONEYVAL/FATF countries that provided information for this study, MR systems are very heterogeneous. Even within the same geographical regions, countries often have very different MR systems. Therefore, it is difficult to highlight any typical cases. 25. The number of independent MR service providers 10 varies greatly from one MONEYVAL/FATF country to another (see table 2 below, data reflecting 2008 figures). At one end of the scale are the United States with more than MRs (this number does not include agents) 11, the UK (approximately MRs) and Mexico (approximately MRs). At the other end of the scale are Austria, Japan, Monaco, Moldova, San Marino, Serbia and Turkey. In these countries, there are no companies that provide MR services alone. In these jurisdictions, MR services are provided by either banks and/or post offices, which also offer other services in addition to MR. Most countries, however, are in between the two extremes. Table 2. Number of money remittance service providers in FATF and MONEYVAL member States Country N of MR providers Country N of MR providers Country N of MR providers USA Chile 15 Poland 2 UK Greece 14 Croatia 1 Hong-Kong, China Armenia 11 Liechtenstein 0 Mexico Slovakia 11 Austria 0 Denmark 334 Bulgaria 7 Japan 0 Argentine 122 Cyprus 7 Monaco 0 Sweden 96 Malta 7 Moldova 0 Finland 70 Latvia 6 San Marino 0 Spain 46 France 4 Serbia Note: throughout this study independent MR service providers refers to the companies to whom the money transferring is a core business, it does not include banks, post offices, and other agents of the MRs to whom MR is side-business. As at 13 February MONEYVAL and FATF/OECD

13 Country N of MR providers Money Laundering through Money Remittance and Currency Exchange Providers Country N of MR providers Country N of MR providers Germany 38 Lithuania 4 Turkey 0 Estonia 34 Romania 4 Albania NA Italy 30 Macau, China 2 Georgia NA Netherlands 28 the former Yugoslav Republic of Macedonia Table Notes: Remarks: only independent MR services providers (excluding banks, post offices, agents). 2 Ukraine 1. Please note that in Hong-Kong, China no distinction is made between money remittance and currency exchange providers. Remittance agents and money changers (RAMCs) are entitled to provide both services. Although not all RAMCs provide both services, most of them do so. NA 26. In some countries, MR providers have well-developed agent systems, with post offices, currency exchange offices, banks, travel agencies, hotels and other companies providing remittance services as agents of the MR companies. Examples in which MR services are offered by other than specific MR businesses include: Albania: Bulgaria: Chile, Liechtenstein, Monaco: Croatia: Estonia: Finland: France: Germany: Greece: Italy: Malta: Moldova: Mexico: Netherlands: Poland: currency exchanges (as agents of Western Union and MoneyGram); banks, currency exchanges and financial houses; post offices (in the first two as agents of Western Union and in the latter as agents of Western Union and MoneyGram); post offices and one bank 12 (as agents of Western Union); post offices, banks, currency exchanges and travel agencies; currency exchanges, travel agencies and miscellaneous shops; post offices (through an agreement with a branch of Western Union licensed as a financial company); post offices, currency exchanges and banks; post offices and currency exchanges (as agents of Western Union); currency exchanges, travel agents, hotels, phone centres, internet centres, news agents and stationers; post offices, travel agencies and hotels; banks (as agents of Western Union, MoneyGram); post offices, currency exchanges, banks and travel agencies; travel agencies; banks, one credit unions financial services provider, travel agencies and a few other providers of selected banking 12 Société Générale Splitska Banka MONEYVAL and FATF/OECD - 13

14 Money Laundering through Money Remittance and Currency Exchange Providers services; Romania: Slovakia: Spain: Sweden: The former Yugoslav Republic of Macedonia : UK: US: both post offices and banks (as agents of Western Union, MoneyGram); post offices, currency exchanges and banks; post offices; post offices, currency exchanges, banks, money transaction offices, travel agencies and hotels; currency exchanges, banks, travel agencies and hotels; post offices, travel agents and other outlets like restaurants and general stores; and currency exchanges, banks, travel agencies and hotels. 27. Post offices usually provide money transfers as an independent side-business of their main activity or act as agents for other MR companies. Typically they are registered / licensed as money remitters in several countries. For example, in San Marino 5 out of 10 post offices operating domestically are authorised to perform money transfer services. 28. Banks offer MR services in Argentina, Chile, Cyprus, France 13, Greece, Malta, the Netherlands, Poland and Serbia, and Spain. 29. Both post offices and banks are authorised to perform MR services as side-businesses in Albania; Armenia; Denmark; Georgia; Hong-Kong, China; Italy; Latvia; Macau, China; Poland; Turkey and Ukraine. 30. Furthermore, currency exchanges (in Argentina, Chile, Malta, the Netherlands, Romania), travel agencies (in Cyprus, Romania) and hotels (Romania) also offer MR services, although money transfer is not their core business activity. This distinguishes them from companies that are defined as independent MR providers in this report. 31. The distinction between national/international MR providers also differs greatly. In some countries, like Croatia, Liechtenstein and Lithuania, Western Union is the only MR service provider. In others, like the former Yugoslav Republic of Macedonia and Poland, where Western Union and MoneyGram operate as MR providers, there are no similar domestic MR operators. In other countries on the other hand, such as Japan and San Marino, no international companies operate. Latvia combines both systems. Latvian Post is the only national provider of money remittance services. The foreign providers are not registered and are supervised by banks that provide money transfer service. 32. When an MR service establishes a permanent business relationship, the identification of the client is mandatory for money remitters in most jurisdictions. For occasional transactions, the thresholds triggering certain measures vary from the obligatory identification of all customers in Argentina, Austria, Cyprus, Germany, Italy, Netherlands, and Spain, to EUR in Finland, San Marino, and Serbia. In respect to the identification requirements for clients initiating money 13 The particular feature of the France is the presence of foreign banks (mostly African and Asian) that are specialised on offering money remittance services to their customers. Quite naturally, the customers of these banks are foreigners living in France MONEYVAL and FATF/OECD

15 Money Laundering through Money Remittance and Currency Exchange Providers remittance, countries can be placed into the following three broad categories (for more details, please refer to table 6 in annex 3): 1. Identification of the client is mandatory for each MR transaction; 2. Identification applies starting from a EUR threshold (as required in the EC Regulation No 1781/2006) and 3. Identification applies starting from some other threshold. 33. If there is a suspicion of ML or TF, as a general rule, the threshold does not apply and identifying the client and informing the FIU is mandatory. Table 3. The client identification threshold in MONEYVAL/FATF member States No threshold, mandatory identification Argentina; European Union State members 1 ; Liechtenstein; Macau, China 2 ; Monaco EUR EUR EUR EUR EUR EUR Table Notes: Armenia, Georgia, Japan, Turkey, Ukraine Croatia, Mexico 3, Moldova 4, San Marino The former Yugoslav Republic of Macedonia and US Chile Albania Serbia 1. In EU Member States, financial institutions must identify and verify the complete information on the payer/originator before executing any wire transfer regardless of any threshold. Only where the wire transfer is (1) executed from an account of a customer who has been identified and whose identity has been verified in the course of the account opening and whose customer whose identity has to be verified at appropriate times according to the 3rd EU AML Directive financial institutions stating that there is no requirement to repeatedly verify the originator s identity (Art. 5(3) of Regulation (EC) No. 1781/2006). In case a wire transfer is not made from an account, the financial institution must verify the identity of the originator only when the amount is above EUR unless the transaction is carried out in several operations that appear to be linked and together exceed EUR In Macau, China, under the regulations for cash remittance activities, cash remittance companies are required to record the identification and address of remitters and beneficiaries regardless of the amount of the remittances in Macau. For wire remittances done through banks and post office, the threshold is MOP (appr. USD 1 000). 3 In Mexico, there are three different thresholds in order to require information for individual cash operations or with travellers cheques, as follows: - between USD , information is requested - between USD , information is requested along with a copy of the official identification - for USD 5000 or more, information is requested and a whole file is integrated to the system. 4 In Moldova, the threshold for occasional transactions is 50,000 lei (appr. EUR 3 500) and for electronic and wire transfers lei (appr. EUR 1 000). At the same time, according to the foreign exchange legislation, payment/ transfers shall be made by licensed banks upon the submission by the individual of the identity document regardless of the amount of the payment/ transfer. 1.3 The currency exchange sector in MONEYVAL/FATF member States 34. Similar to money remittance, the currency exchange 14 (hereinafter CE) services vary somewhat in MONEYVAL/FATF member. However, due to the standardised nature of the business, the differences are not as noteworthy as for MR. 14 The terms bureaux de change and currency exchange providers refer to the same type of activity. For the sake of consistency within this report, the term currency exchange provider is used MONEYVAL and FATF/OECD - 15

16 Money Laundering through Money Remittance and Currency Exchange Providers 35. According to the data received, the number of currency exchange service providers shows considerable variation from one MONEYVAL/FATF member to another (see table 4 below). In a number of countries (e.g., Croatia; Georgia; Hong Kong, China; Mexico; Poland; Serbia; Spain; United Kingdom, Ukraine and United States) the number exceeds At the other end of the scale, there are Finland and Monaco with less than 5 currency exchange providers. Table 4. Number of bureaux de changes 1 in selected MONEYVAL/FATF member States Country No. of bureaux de change Country No. of bureaux de change Country No. of bureaux de change Albania NA Bulgaria 625 Sweden 56 Argentina NA France 515 Denmark 44 Poland Italy 489 Germany 24 US Romania 470 Macau, China 17 Mexico Slovak 455 Greece 12 Spain the former Netherlands 12 Yugoslav Republic 271 Hong Kong, China of Macedonia Malta 5 7 Serbia Moldova 319 Finland 4 UK Armenia 246 Monaco 2 Croatia Japan 196 Austria 7 0 Ukraine Estonia 163 Cyprus 7 0 Georgia Chile 128 Liechtenstein 7 0 Turkey 755 Latvia 75 San Marino 7 0 Table Notes: Lithuania Only independent service providers, i.e. excluding banks and other businesses for which CE is not a core business. 2. As of 13 February 2009, the date of the US response to the questionnaire for this project. 3. currency exchange services providers. 4. Please note that in Hong-Kong, China no distinction is made between money remittance and currency exchange providers. Remittance agents and money changers (RAMCs) are entitled to provide both services. Although not all RAMCs provide both services, most of them do so. 5. In Malta CE (as well as MR) providers form part of a wider category of entities defined as financial institutions. Therefore, the number of MR and CE providers in the tables refers to the same institutions 6. In Ukraine, the following institutions are authorised to open currency exchanges for conducting currency exchange transactions: banks operating under a banking license and having prior written permission, and financial institutions/national operators of postal services that obtain general license from the National Bank of Ukraine for conducting non-trade transactions with currency values. 7. Only banks provide currency exchange services. 36. Naturally in most (if not in all) countries, banks are authorised to perform CE services. In a few countries Austria, Cyprus, Liechtenstein and San Marino CE is provided exclusively by banks, and no independent currency exchanges exist. Although it is not obvious from the first sight, in Lithuania the system is quite similar. All CE businesses (approximately 60) in Lithuania are operated by banks. Furthermore, divisions and branches of banks as well as credit unions (22 at present) are also authorised to perform currency exchange. 37. In Mexico, the currency exchange service providers can be divided into two groups: Foreign exchange houses (casas de cambio) are legal entities that require a license to engage in currency exchange services with the public; and MONEYVAL and FATF/OECD

17 Money Laundering through Money Remittance and Currency Exchange Providers Foreign exchange centres (centros cambiarios) are either natural or legal persons that do not require a license in order to engage in currency transactions, but whose operations are limited to the equivalent of USD per customer per day. They must be registered with the Tax Administration Service. 38. In Slovakia there are three types of foreign currency exchange providers: Currency exchanges require a simple FX license that authorises natural or legal persons to purchase or sell local currency against foreign currency (money transfers are not included); FX business providers I legal persons with a minimum capital requirement of EUR Their license allows them to both purchase and sell local currency against foreign currency on their own or their client s behalf but only in cashless form. They are permitted to make only domestic money transfers; and FX business providers II legal persons with minimum capital requirement of EUR Their license authorises them to carry out or intermediate cross-border money transfers both in local or foreign currency in cash. They are permitted to make foreign money transfers through banks only. 39. Regarding customer identification, the same thresholds apply as for MR in most countries. The exceptions are: Table 5. Threshold Exceptions to Applicable Customer Identification Requirements COUNTRY THRESHOLD (as of 2008) Croatia HRK , i.e. appr. EUR Estonia EEK , ie. appr. EUR France EUR Japan YEN , i.e. EUR Germany EUR threshold applies if the transaction is carried out through an account other than the customer s account; Georgia GEL 3 000, i.e. appr. EUR Greece (and Italy, Malta, Poland, Sweden, United Kingdom) Table Notes: EUR Latvia LVL 5 000, i.e. appr. EUR Lithuania EUR Moldova MLD LEI 50,000 (approx. EUR 3 500) Macau, China MOP , i.e. appr. EUR Mexico Thresholds vary for transactions involving cash or travellers cheques Slovakia EUR United States USD 1 000, i.e. appr. EUR In Mexico there are three different thresholds in order to require information for individual cash operations or with travellers cheques, as follows: - between USD , information is requested; - between USD , information is requested along with a copy of the official identification (identical threshold applicable also to MR); - for USD 5000 or more, information is requested and a whole file is integrated to the system (identical threshold applicable also to MR) MONEYVAL and FATF/OECD - 17

18 Money Laundering through Money Remittance and Currency Exchange Providers 1.4 Licensing, supervision and sanctioning system of money remittance and currency exhange providers 15 in MONEYVAL / FATF member States Licensing/registration 40. In most MONEYVAL and FATF member states the MR provider must be registered or licensed (see table 7 in annex 1)). In countries that require licenses in order to provide MR service, either the central bank, as in Albania, Bulgaria, Cyprus, Slovakia, Spain, or the financial supervisory authority, as in France, Germany or Malta, is the competent authority to grant licenses. 41. In the European Union, new rules on payment services in the EU internal market provide for an evolution regarding the licensing of providers of money remittance services. Directive 2007/64/EC on payment services in the internal market (which was due to be integrated into the EU legal framework in November 2009) establishes the obligation to licence payment service providers (except for certain financial institutions that already have a licence, such as banks). The Directive creates two levels of licences. Firstly, the EU-wide licence for the newly created category of payment institution. This category includes payment service providers which are not allowed to accept deposits from the public (which banks do) and which do not issue electronic money (which is done by banks or so-called e-money institutions). Obtaining an authorisation as a payment institution is subject to a set of strict conditions, including prudential requirements. The authorisation granted by a EU Member State to a payment institution is valid for the entire EU territory, which can, for instance, provide its services in other EU countries including through local agents. There is a specific procedure to approve agents, where AML checks can be done by the relevant competent authorities. Therefore, it is possible that a payment institution licensed in one EU country operates in another EU country without the need to obtain a second licence from that second EU country. Secondly, the EU directive on payment services allows EU Member States to establish a lower level (but this level is not compulsory): natural or legal persons unable to meet all the strict conditions for becoming payment institutions may nevertheless carry out payment services in the Member State where they have their head office or legal residence after having been registered in that EU Member State. Some of the Directive requirements for payment institutions are nevertheless applicable to this lower level. The goal of this lower level regime is to bring all persons providing remittance services within the ambit of certain minimum legal and regulatory requirements (cf. paragraph 15 of the preamble of the Directive). As a result, the provision of money remittance services in the EU is forbidden for other categories of undertakings or individuals. 42. In the countries that require registration of MR service providers, one of three entities generally oversees the registration process: The financial intelligence unit (FIU) (for example, in Chile; Hong Kong, China, and the United States 16) ); The financial supervisory authority (for example, in Georgia); or Another government authority (for example, the Ministry of Economic Affairs and Communications in Estonia; State Provincial Office of Southern Finland in Finland; the Monetary Authority in Macau, China; the Tax Administration Service in Mexico; HM Revenue and Customs in the UK) In this section we focus solely in independent money remittance /currency exchange providers, i.e. those that do not operate as a part of banks, post offices and/or agents of the MR providers. In addition to federal registration, MSBs must be licensed or registered in 48 of the 50 US States MONEYVAL and FATF/OECD

19 Money Laundering through Money Remittance and Currency Exchange Providers Latvia is an exception, as money remitters need neither register nor obtain a license to operate; however, legislation addressing this matter was in the process of being drafted at the time of the survey. 44. As regards the provision of CE services, a license is required in most countries. 17 As a general rule, the authority responsible for issuing licenses is the central bank. 45. In a few countries, the CE businesses do not need to be licensed, but have to be registered in order to be permitted to provide currency exchange service. Usually the institution responsible for keeping the registry is a governmental authority (for example, National Revenue Agency in Bulgaria, the Commerce and Companies Agency in Denmark, the Ministry of Economic Affairs and Communications in Estonia, HM Revenue and Customs in the UK, etc.). 46. In Chile in 2009 there was no mandatory registering/licensing system for money remitters and currency exchange at the state level, and the FIU had in the interim taken on the task of keeping the record instead. The current system was considered to be ineffective and amendments to the legal framework were being discussed in order to introduce the statutory registering system. 47. In Japan there is no registering/licensing system for currency exchange at all. In Finland, there is a legal requirement to establish a registering/licensing system for currency exchanges, but its concrete implementation had not yet taken place at the time the survey was carried out. 48. In most countries (with the exception of Chile; Georgia; Hong Kong, China; and Japan where no specific fit and proper controls apply to MR/CE businesses) the fit and proper control is applied in some form at least during the licensing/registration process. As a minimum standard, this background check usually includes evaluating the qualification, creditworthiness (i.e. absence of tax duties) and criminal record (for serious offences) of the owners and managers of the company. In Denmark the fit and proper controls cover beneficial owners, too. 49. However, there are countries that apply more in-depth control mechanisms. For example, in Armenia the central bank also checks the qualification through examination of the employees of the currency exchange business. The qualification document is valid for three years. 50. After granting the license/registration to the company, in most countries no permanent ongoing monitoring is applied and further action is taken only if there is evidence of unlawful activities or a change in the company s management board. In some countries this system is somewhat standardised; for example, in Germany prosecution authorities and courts have to notify Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin the Federal Financial Services Supervisor) of criminal proceedings against managers. The same system is applied in Estonia, where the registration of the company is cancelled if the member of the administration of the company is convicted of criminal offences. 51. However, there are a few countries that monitor the eligibility criteria more or less on an periodic basis. For example, the information about meeting the eligibility criteria of the managers and owners is updated at least once a year in Albania, Croatia, Italy, Lithuania, Mexico, and Sweden. AML/CFT supervision 52. In most countries, the central bank, the FIU and/or financial supervisory authority carries out AML/CFT supervision over the money remitters and currency exchanges See Annex 3, Table MONEYVAL and FATF/OECD - 19

20 Money Laundering through Money Remittance and Currency Exchange Providers 53. In the countries that apply the registering system of money remitters/currency exchanges, usually the authority responsible for keeping the register also supervises the entities. 54. Typical sanctions applied to an unregistered /unlicensed money remittance providers are fines and/or imprisonment. 19 Maximum levels of fines imposed vary from EUR in Bulgaria to unlimited amounts in the UK. 55. Most responding countries indicated that existing sanctioning regime was considered to be effective in deterring the illegal MR providers. In the United States, for example, there are federal and state sanctions for operating a money remitter or currency exchange that fails to become licensed or registered. For example, knowingly operating a money remittance business without a proper state license/registration and federal registration is subject to a fine of up to USD a day and imprisonment for up to five years. Furthermore, an unlicensed or unregistered MR/CE service providers may be subject to civil and criminal penalties for violations of the Bank Secrecy Act. In contrast, in Denmark, the current system is considered to be relatively ineffective because it takes a long time for law enforcements to investigate and prosecute persons in the case of unregistered activities. However, Danish AML supervisors in close co-operation with the State Prosecutor have decided to intensify the sanctions in cases of non-compliance. 56. In Mexico, the Tax Administration Service, a decentralised entity of the Ministry of Finance and Public Credit) is in charge of the supervision of money remitters (transmisores de dinero) and currency exchange centres (centros cambiarios) regarding the AML/CFT preventive measures in Mexico. With regards to supervision, in the case of casas de cambio, these are by decree of law supervised by the National Banking and Securities Commission (CNBV). 57. Although there is no agency that supervises CE service providers in Japan, such businesses must report the volume and number of transactions to the Ministry of Finance when they exceed a certain volume See Annex 3, Table 4. See Annex 3, Table MONEYVAL and FATF/OECD